Hard Rock Hotel owner asks for break on loan

(Crain's) — The owner of the Hard Rock Hotel on Michigan Avenue has asked a loan servicer to accept partial payment on an overdue $69.5 million loan after a failed attempt to refinance the 381-room hotel.

The Hard Rock's owner, a venture led by Grosse Pointe, Mich.-based Becker Ventures LLC, finds itself in a predicament that has plagued many other hotel investors that borrowed money at the peak of the real estate market. Though the hotel market is recovering, they can't find new loans to replace maturing ones because their properties are worth less and lenders are more conservative.

Facing an Aug. 1 due date on the loan, Becker had originally asked that the maturity date be pushed back two years, but now it wants the loan's servicer to accept less than full payment, according to loan report from Bloomberg L.P.

Manus Clancy, senior managing director at New York-based research firm Trepp LLC, estimates the hotel at 230 N. Michigan Ave. may be able to support a loan of about $50 million. But that's still well short of the $69.5 million that the Becker venture was required to pay back at the beginning of the month.

A Becker spokeswoman did not return calls. A spokesman for the loan's servicer, McLean, Va.-based JER Partners, also did not return a call.

JER Partners is a so-called special servicer hired to handle problem loans within commercial mortgage-backed securities (CMBS) offerings, or pools of commercial loans that have been converted into bonds. The company took over the loan in May, when it became clear that the Becker venture was going to have a hard time paying back the debt.

The Hard Rock joins a growing list of local hotels that have drowned in debt taken out during the bubble, a group that includes the Hotel Burnham in the Loop, the Sofitel in the Gold Coast and the James Hotel in River North.

Problem loans typically get worked out in one of three ways, Mr. Clancy said. Some borrowers simply decide to hand their properties back to their lender and move on, concluding that their situation is hopeless and it makes no sense to invest good money after bad.

Others, he said, put up a fight or passively resist efforts by lenders to repossess their buildings. A good example of that scenario is the Allerton Hotel on North Michigan Avenue, the focus of a prolonged legal battle between a New York hedge fund manager and a Maryland real estate investment trust.

The Hard Rock, Mr. Clancy said, seems to fall in the third category, where the borrower acknowledges it can't pay off the loan but tries to offer solutions. If JER accepts a discounted payoff, the Becker venture may be able to sell off the hotel or bring in a new partner to recapitalize it.